Emerson to push for tax changes to cut red tape

Federal Small Business Minister Craig Emerson will attempt to cut the red-tape burden on small businesses by recommending that small companies be treated in the same way as partnerships and the introduction of a “BAS Easy” option to reduce GST paperwork.

The proposals, announced during Emerson’s speech to the Council of Small Businesses of Australia annual conference which started last night, will form part of Emerson’s recommendation to the Rudd Government’s tax review, which will be led by Treasury Secretary Ken Henry and will report by the end of 2009.

The proposal to treat small businesses with up to five shareholders as a partnership was originally formulated by the Institute of Chartered Accountants in Australia and accounting firm Deloitte. The system – known as equity flow through – is designed so that income is taxed when it flows to the owners of businesses, instead of in the business itself.

Businesses can maintain the advantages of incorporation such as limited liability while avoiding a wide range of difficult-to-administer tax mechanisms, such as carry-forward company loss provisions, fringe benefits tax provisions, family trust election provisions, trust loss provisions and franking credit rules.

While there is no cap on the size of the business that could use the system, it would be most cost effective for businesses with around five employees or profits in the range of $500,000. Beyond that the tax compliance costs avoided would be outweighed by the fact individuals are being taxed at personal income tax rates rather than the lower company tax rate.

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“The measure is designed to make it easier for small businesses to comply with their tax obligations without affecting their overall tax obligations,” Emerson said last night.

Emerson also said he was working with Finance Minister Lindsay Tanner on a plan to improve small business access to the $29 billion government procurement market by making the tender process easier to negotiate. “We are always on the look-out for ways to improve the access of SMEs to government markets,” he says. “One option might be to expand panel arrangements so that, where practical, the supply of services is drawn from a full range of businesses – big, medium and small.”

Emerson also says he is working on a “whole-of-government Commonwealth approach” to give businesses the right to charge interest on invoices not paid within 30 days. He expects to release more detail on this proposal shortly.